In sharp
contrast to across-the-board losses in 2015, the performance of VIX ETPs in
2016 was much more balanced and in line with historical norms. While there were some sharp VIX spikes, the
combination moderate
volatility, above-average contangoand
persistent mean
reversion translated into a sharp down year for the long VIX ETPs and a
strong up year for the inverse VIX ETPs.
The more complex multi-leg, long-short and dynamic VIX strategy ETPs
were closest to breaking even for the year, with half of these posting modest gains
and half posting small losses.

In the graphic
below, I have plotted the performance of all twenty VIX-based ETPs with respect
to leverage and maturity, using leverage on the y-axis and maturity on the x-axis. This group includes five VIX
strategy ETPs that have no easily discernible point on the leverage-maturity
grid. Depending on how finely you wish
to split hairs, these twenty ETPs account for anywhere from
fourteen to eighteen unique ways to trade volatility long and short, across
various maturities and according to a wide variety of strategic
approaches.

[source(s): VIX and More]

On the plus
side, while both XIV
and SVXY were up
over 80% during calendar 2016, this performance falls short of the 2012 and
2013 numbers, where each ETP gained more than 100% in both years. Similarly, while losses of over 93% for UVXY and TVIX must sound
like a worst-case scenario for these two products, losses were over 97% in 2012
and just slightly better – at -92% – in 2013. In terms of consistent winners, while their numbers have been more modest, the most consistent gainers in the VIX ETP space have been ZIV, TRSK and SPXH.

Two new VIX ETPs entered the fray in 2016: VMIN and VMAX. While these products have not yet attracted the interest of investors that I believe is warranted (VMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years), there is still time for investors to discover these products. For the record, VMIN was launched on May 2, 2016 and outperformed both XIV and SVXY from the launch date until the end of the year, racking up an impressive 80.5% return in just eights months of trading. Going forward, I would expect VMIN to regularly be the top performer in any period in which the inverse ETPs post positive returns.

For those who
may be wondering, the VIX index was down 22.9% for the year, while the front
month VIX
futures product ended the year with a loss of 18.3%.

As is typically the case, contango was a
significant performance driver during the course of the year. Contango affecting the front month and second
month VIX futures averaged a relatively robust 8.3% per month during the year
(the highest since 2012), while contango between the fourth month and seventh
month was slightly above average at 1.8% per month.

During the
course of the year, five VIX ETPs were shuttered.
These include VXUP
and VXDN, XVIX, CVOL and VQTS. The biggest factors in the demise of these
products was a lack of volume and assets.
In the case of VXUP and VXDN, the product complexity and cumbersome
array of distributions also helped to quell investor enthusiasm. Last but not least, I elected to drop XXV
and IVOP
from this list as these zombie ETPs both have less than 1% exposure to their
underlying volatility index due to the lack of daily rebalancing. As a result, these have become almost
entirely all-cash vehicles, with a dash of volatility. (For those who are curious about these
instruments, follow the links above, click on the link to the prospectus and do
a keyword search for “participation.”)

As an aside, for those who
may be wondering, the flurry of recent posts is not an anomaly. There is a lot to be said about the VIX, volatility,
ETPs, market sentiment and many of my other areas of interest. With the
the-year anniversary of the VIX and More blog just three days away, this seems
like a good time to dive head first back into the fray.

In sharp
contrast to across-the-board losses in 2015, the performance of VIX ETPs in
2016 was much more balanced and in line with historical norms. While there were some sharp VIX spikes, the
combination moderate
volatility, above-average contangoand
persistent mean
reversion translated into a sharp down year for the long VIX ETPs and a
strong up year for the inverse VIX ETPs.
The more complex multi-leg, long-short and dynamic VIX strategy ETPs
were closest to breaking even for the year, with half of these posting modest gains
and half posting small losses.

In the graphic
below, I have plotted the performance of all twenty VIX-based ETPs with respect
to leverage and maturity, using leverage on the y-axis and maturity on the x-axis. This group includes five VIX
strategy ETPs that have no easily discernible point on the leverage-maturity
grid. Depending on how finely you wish
to split hairs, these twenty ETPs account for anywhere from
fourteen to eighteen unique ways to trade volatility long and short, across
various maturities and according to a wide variety of strategic
approaches.

[source(s): VIX and More]

On the plus
side, while both XIV
and SVXY were up
over 80% during calendar 2016, this performance falls short of the 2012 and
2013 numbers, where each ETP gained more than 100% in both years. Similarly, while losses of over 93% for UVXY and TVIX must sound
like a worst-case scenario for these two products, losses were over 97% in 2012
and just slightly better – at -92% – in 2013. In terms of consistent winners, while their numbers have been more modest, the most consistent gainers in the VIX ETP space have been ZIV, TRSK and SPXH.

Two new VIX ETPs entered the fray in 2016: VMIN and VMAX. While these products have not yet attracted the interest of investors that I believe is warranted (VMAX and VMIN Poised to Be Most Important VIX ETP Launch in Years), there is still time for investors to discover these products. For the record, VMIN was launched on May 2, 2016 and outperformed both XIV and SVXY from the launch date until the end of the year, racking up an impressive 80.5% return in just eights months of trading. Going forward, I would expect VMIN to regularly be the top performer in any period in which the inverse ETPs post positive returns.

For those who
may be wondering, the VIX index was down 22.9% for the year, while the front
month VIX
futures product ended the year with a loss of 18.3%.

As is typically the case, contango was a
significant performance driver during the course of the year. Contango affecting the front month and second
month VIX futures averaged a relatively robust 8.3% per month during the year
(the highest since 2012), while contango between the fourth month and seventh
month was slightly above average at 1.8% per month.

During the
course of the year, five VIX ETPs were shuttered.
These include VXUP
and VXDN, XVIX, CVOL and VQTS. The biggest factors in the demise of these
products was a lack of volume and assets.
In the case of VXUP and VXDN, the product complexity and cumbersome
array of distributions also helped to quell investor enthusiasm. Last but not least, I elected to drop XXV
and IVOP
from this list as these zombie ETPs both have less than 1% exposure to their
underlying volatility index due to the lack of daily rebalancing. As a result, these have become almost
entirely all-cash vehicles, with a dash of volatility. (For those who are curious about these
instruments, follow the links above, click on the link to the prospectus and do
a keyword search for “participation.”)

As an aside, for those who
may be wondering, the flurry of recent posts is not an anomaly. There is a lot to be said about the VIX, volatility,
ETPs, market sentiment and many of my other areas of interest. With the
the-year anniversary of the VIX and More blog just three days away, this seems
like a good time to dive head first back into the fray.

Purpose of this Blog

The intent of this blog is to educate, inform and entertain readers, while also serving as an archived learning laboratory of sorts as I try to sharpen my thinking in areas such as volatility, market sentiment, and technical analysis. I also enjoy charging off on tangents and hope that readers may find some illumination or at least amusement in these forays.

Reviews of VIX and More

About Me

Chief Investment Officer at Luby Asset Management LLC in Tiburon, California. Previously worked as a full-time trader/investor and also a business strategy consultant. Education includes a BA from Stanford and an MBA from Carnegie Mellon.
Useless trivia: I once broke the world pogo stick jumping record without knowing it.